Business Startup Loans are business financing instruments which help new ventures to grow and flourish. A startup business loan provides funds to people who are willing to start a new business or to one who has already started a business recently and needs funding to run their business. As these loans are specifically designed for the startups hence, it can opt for businesses even with no or a little credit history.
Pros of Startup Business Loans
- Easy Access to funds
- The equipment acts as collateral
- Business owners with no or very less financial history can avail this loan.
What you Need to Avail a Startup Business Loan
- A solid business plan
- A clear approximation of the fund required
- Plan showing a clear potential of growth of your business
- Clearly defined goals and objective
Features of Startup Business loan
- In terms of avail, these loan entrepreneurs need to prove their personal credit history and a crisp business plan.
- The loan is only approved if the lender can see a potential in the business to earn profit in the near future.
- Many financial organizations offer these loan online and if offline it is a fast process, unlike a normal business loan.
- Startup business loan requires less documentation.
- Flexible tenure period.
- Generally, lenders do not ask for any security or collateral for business startup loans and if asked business requirements and machinery can also act as the collateral.
- Competitive low-interest rates from other business loans but it also depends upon the individual’s credit history.
- Flexible repayment options.
Types of Startup Business Loans
Business Line of Credit
A Business line of credit is the same as that of a credit card. The difference between both is, here the funds can only be used for the business rather than for individual use.
The biggest advantage with this loan is that you get a maximum limit, and one can withdraw as many times as he/she want within that particular limit as per their requirement. The interest charged is only on the borrowed amount instead of the maximum withdrawal limit. The borrower also need not pay interest on the borrowed amount for some particular period of time, depending on the lender. This makes it even easier for the startups to tackle their business expenses and they can easily repay the borrowed amount when the business is settled.
In this loan business equipment acts as the collateral. Since the loan is secured lenders charge lower interest rate but it also depends on the borrower’s credit history. The borrowed amount can be used to purchase equipment, inventories and so on. The advantage with the equipment financing is the borrower can claim for the tax benefit.
Government Business Startup loans
- Startup India: This scheme has been started by India to support startups and small industries. The scheme is headed by Small Industries Development Bank of India (SIDBI). The scheme offers Composite loan between ₹10 Lakhs and ₹ 1 Cr to the Entrepreneurs. The scheme covers 75% of the total project cost.
- Credit Guarantee: This scheme is also a government of India initiative. It is being headed by Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE). The scheme offers both term loans and working capital loan to the business owners. Under this scheme, one can get up to ₹100 Lakhs per borrowing unit.
- Loan for Rooftop Solar PV Power Projects: The project is headed by Indian Renewable Energy Development Agency (IREDA). The quantum from the IREDA shall be 70% of the project cost with a minimum promoter’s contribution of 30%.
- Pradhan Mantri Mudra Yojana (PMMY): This scheme is a big initiative from our government to push and give support to the small and medium enterprises of your country. PMMY is headed by Micro Units Development and Refinance Agency Ltd. (MUDRA). MUDRA offers incentives under 3 different scheme-
- Shishu: Under this scheme loan amount up to ₹ 50,000 can be offered.
- Kishor: This scheme can cover the loan amount above ₹ 50,000 but upto ₹ 5 Lakhs.
- Tarun: Under these loans above ₹ 5 Lakhs and up to ₹10 Lakhs can be covered.
- Bank Credit Facilitation Scheme: This scheme is headed by the National Small Industries Corporation (NSIC). The scheme is aimed to meet the credit needs of the MSME units within India who have the potential to grow. The NSIC has partnered with many banks to provide loans to a large number of MSMEs. The repayment tenure under this scheme ranges from 5 years to 7 years but can be increased to 11 years in the special cases.
- Multiplier Grants Scheme (MGS): The scheme is headed by Department of Electronics and Information Technology (DeitY). This scheme is applicable to the IT Service industry, analytics, enterprise software, technology hardware, and AI. Under this scheme, a maximum loan amount up to ₹ 2 Cr per project can be availed and the duration of each project should be two years or less than it.